(Source: Stockholm International Peace Research Institute; issued June 11, 2007)

SIPRI reports that world military expenditure in 2006 was $1204 billion in current dollars, a 3.5 per cent increase since 2005. In the period 1997–2006 world military expenditure rose by 37 per cent.

The continued surge in China’s military spending—which reached an estimated $49.5 billion (in 2005 dollars)—saw it overtake Japan ($43.7 billion) to become the biggest military spender in Asia and the fourth biggest in the world in 2006. India was the third biggest spender in Asia, with $23.9 billion (in 2005 dollars). The USA spent $528.7 billion and Russia an estimated $34.7 billion (in 2005 dollars) on their military sectors in 2006.

‘It is worth asking how cost-effective military expenditure is as a way of increasing the security of human lives, if we talk about avoiding premature deaths and disability due to current dangers. For example, we know that millions of lives could be saved through basic health interventions that would cost a fraction of what the world spends on military forces every year,’ says SIPRI Military Expenditure and Arms Production Programme Leader Elisabeth Sköns.

Almost 50 per cent more conventional weapons, by volume, were transferred internationally in 2006 than in 2002, according to data gathered by SIPRI. China and India were the largest importers of weapons. The USA and Russia were the largest weapon suppliers.

‘The USA and the European Union countries continue to supply vast quantities of arms to the Middle East, despite the knowledge that it is a highly volatile region,’ comments Siemon Wezeman, SIPRI Arms Transfers Project Leader.

A world of risk

In its overview of developments in the world of peace and security, armaments and disarmament during the past year, SIPRI Yearbook 2007 highlights the need for a new broad and comprehensive approach to providing human security in view of the diversity of risks to security in the world today. SIPRI staff comment on some of the issues covered:

- On energy and security:
‘Seeing how energy could become a weapon or new conflicts could be caused is the obvious part: finding new ways to cooperate on the threats and hardships that will hit all humanity is tougher but ultimately more worthwhile,’ says SIPRI Director Alyson Bailes.

- On international terrorism and armed conflicts:
‘In the early 21st century, when most forms of armed political violence appear to be either declining or stabilizing, terrorism, in contrast, is clearly on the rise,’ says SIPRI Project Leader Ekaterina Stepanova.

- On democratic accountability of intelligence services:
‘Good intelligence has always been vital to security and to be good today, it needs more than ever to be impartial and professional. Controls are needed not just in case the agencies have their own agenda, but to deal with the apparently more common problem of their targets and findings being skewed for political purposes’, says SIPRI Director Alyson Bailes.

- World nuclear forces:
According to SIPRI’s annual inventory of world nuclear forces, the USA, Russia, France, the UK and China together held more than 26 000 nuclear warheads at the beginning of 2007. Although the total number of warheads is gradually being cut, all five countries are undertaking or planning major programmes to update their nuclear weapon arsenals.

‘The decisions taken by the five permanent members of the UN Security Council will keep nuclear weapons in their arsenals beyond 2050,’ says Ian Anthony, Leader of the SIPRI Nonproliferation and Export Control Project.

Summary of salient chapters on arms production and export

Chapter 8. Military expenditure

World military expenditure in 2006 is estimated to have reached $1204 billion in current dollars. This represents a 3.5 per cent increase in real terms since 2005 and a 37 per cent increase over the 10-year period since 1997. Average spending per capita increased from $173 in 2005 to $184.

World military expenditure is extremely unevenly distributed. In 2006 the 15 countries with the highest spending accounted for 83 per cent of the world total.

The large increase in the USA’s military spending is to a great extent due to the costly military operations in Afghanistan and Iraq. Most of the increase resulted from supplementary allocations in addition to the regular budget. Between September 2001 and June 2006, the US Government provided a total of $432 billion in annual and supplemental appropriations under the heading ‘global war on terrorism’. This increase in US military spending has contributed to the deterioration of the US economy since 2001. Taking both immediate and long-term factors into account, the overall past and future costs until year 2016 to the USA for the war in Iraq have been estimated at $2267 billion.

In 2006 China’s military expenditure continued to increase rapidly, for the first time surpassing that of Japan and hence making China the biggest military spender in Asia and the fourth biggest in the world. Amid intense discussions, Japan decided, for the fifth consecutive year, to reduce its military spending in 2006 and to focus its military budget on missile defence.

In a comparison of government spending priorities between samples of countries in different per capita income groups, the ratio of military spending to social spending was found to be highest in those countries with the lowest per capita incomes. However, between 1999 and 2003, the share of military expenditure in GDP stayed at a constant level in the high- and middle-income country sample and decreased somewhat in the low-income sample. At the same time, social spending as a share of GDP increased in the high- and low-income groups and remained relatively stable in middle-income countries.

Chapter 9. Arms production

The arms sales of the 100 largest arms-producing companies in the world apart from China in 2005—the SIPRI Top 100—increased by 3 per cent in real terms over the arms sales of the Top 100 for 2004 and by 18 per cent over those of the Top 100 for 2002.

US companies dominate the SIPRI Top 100: 40 US firms accounted for 63 per cent of the combined Top 100 arms sales of $290 billion in 2005. Some 32 West European companies accounted for another 29 per cent, and 9 Russian companies for 2 per cent.

Companies based in Japan, Israel and India, in descending order, accounted for most of the remaining 6 per cent of world arms sales. Four US companies, one British company and one Italian company increased their arms sales by more than $1 billion in 2005 and 11 companies increased their arms sales by more than 30 per cent. Of these, four were Russian companies and five were companies that increased their arms sales in the areas of information technology and services.

Most of these sharp increases were the result of acquisitions of other companies (or parts of other companies) rather than of organic growth.

Parts of the US arms industry have benefited substantially from the USA’s post-September 2001 policies, particularly the increased demand for new equipment generated by the military operations in Afghanistan and Iraq. These policies have also stimulated strong growth in government expenditure on homeland security, thereby increasing demand in the broader security industry.

A major factor behind current developments in the arms industry has been the high and rising fixed costs of advanced weapon systems. Companies use mergers and acquisitions to achieve economies of scale, but the increased concentration of production can also lead to reduced competition and thus remove incentives to keep prices down and innovation up. Government strategies to deal with this economic dilemma have included international collaboration and arms exports; using commercial technology in weapon systems; and outsourcing, privatization and partnerships with the private sector.

However, most governments still cannot afford to maintain their current levels of arms procurement and have had to make choices affecting their defence policies and the structure of their arms industries. The debate in the UK in 2006 over a new defence industrial strategy provided a good illustration of the challenges confronting the European arms industry. One of the tasks of the European Defence Agency, established in 2004, is to achieve cost savings, primarily by promoting European collaboration in armaments development and production.

Chapter 10. International arms transfers

There has been an almost 50 per cent increase in the volume of major conventional arms transfers over the past four years, reversing a downward trend after 1997.

The USA and Russia were the largest suppliers in the five-year period 2002–2006, each accounting for around 30 per cent of global deliveries. Exports from European Union (EU) members to non-EU countries accounted for just over 20 per cent of global deliveries. Because of its very limited internal market, the Russian arms industry remains heavily dependent on exports—most newly produced weapons in Russia are exported—to maintain an arms industry and fund development of new weapons and technology. This limits the possibility that Russia will exercise restraint in its arms exports. The arms industries of the USA and EU members are in general far less export dependent.

China and India remained the largest arms importers in the world. Also among the top 10 importers were five Middle Eastern countries. While much media attention was given to arms deliveries to Iran, mainly from Russia, deliveries from the USA and European countries to Israel, Saudi Arabia and the United Arab Emirates were significantly larger.

Especially worrisome are deliveries of long-range conventional strike systems to these states and the effects this may have on regional stability.

Because the development of large weapon systems is becoming increasingly costly, nearly all countries have become or soon will become dependent on other countries for weapons or weapon technology. This could lead to mutual dependency—as in US–Europe relations—or to one-sided dependency, as is the case for most developing countries. Some countries may be unwilling to accept dependency or be unable to access arms and technology. They may try, at high economic cost, to become autonomous in arms production or may focus on relatively cheap alternative weapons such as weapons of mass destruction, or war-fighting strategies such as terrorism and IT warfare.

The problem of controlling state supplies of weapons to rebel groups, while not new, was highlighted in 2006 by the arsenal acquired by Hezbollah from Iran and used in its war with Israel, and by serious breaches by state actors of the UN arms embargo on Somalia. Transparency in arms transfers, which in the 1990s saw significant improvement, with more and better national export reports, has remained stagnant in the past few years.